Yearbook and class ring producer Jostens is expected to maintain stable cash flow, but both Moody's Investors Service and Standard & Poor's are concerned about the company's high leverage following its leveraged buyout by Investcorp in May 2000.
Jostens currently is wrapping up an opportunistic partial refinancing via Deutsche Bank. S&P has given the new $330 million "C" loan a BB- rating, while Moody's has rated it B1. The new "C" loan repays the existing "B" loan and has a lower spread. There is also a $150 million revolver due in 2006 and a $95 million "A" loan in place.
"The ratings reflect Jostens' high leverage and relatively narrow business profile," said S&P analyst Jean Stout. Jostens remains highly leveraged despite $45 million in voluntary debt payments since the LBO. In addition to the bank debt, Jostens has $225 million of subordinated debt.
Although the debt-to-EBITDA ratio is expected to be more than four times in 2002, financial performance has benefited from increased pricing, manufacturing efficiencies and cost containment initiatives. Additionally, free cash flow is expected to be in excess of capital expenditure and debt amortization requirements, said Stout. The bank debt is secured by substantially all of the company's assets and, if a payment default were to occur, lenders could expect to recover at least 50% of the principal, she added.
Jostens' results are expected to grow modestly. "Market growth follows the numbers of high school and college graduates," explained Stout. Favorable demographic trends should continue to contribute to modest sales volume increases, she added. Moody's, however, believes Jostens remains exposed to adverse long-term cultural and fashion trends, in addition to cyclical downturns in disposable income or consumer spending.